Climate Change Impact on Business - Essay Example

Climate Change Impact on Business Introduction: Climate change is an issue that faces intense debates all around the world. Generally, the expression describes long-term changes in weather patterns, such as temperatures and precipitations, which decrease or increase significantly in relation to a set of average indicators over a certain period of time, as a result of natural causes and human activity. Some of the most important anthropogenic factors are the increased emissions of CO2, use of aerosols and deforestation, which threaten to produce dramatic weather shifts that could endanger water and energy resources, cause inundations, heat-related deaths and the fast spread of infectious diseases, as well as create serious damage to all industry sectors. Therefore, climate change is regarded nowadays as the negative outcome of the modern economic system, along with the process behind its making. It is a problem that addresses all the major players in both local and global economies: the operational factors, such as businesses, the regulatory factors, such as governments, the intellectual factors, such as foundations and universities (Echegaray, et al., 2008), as well as the citizens or the consumers, which, at their turn, establish the connections between the factors mentioned above. All of these entities have at least something to say about climate change, and while some of the discussions are focused on finding the guilty parties, on throwing the blame on someone for what has been already done, others are trying to find the appropriate solutions. I believe that businesses should understand that environmental awareness is crucial for their long-term sustainability. Companies should recognize climate change as a risk and establish special risk-assessment teams to indentify its impact on the company’s costs, supply chains, work practices and outputs. For example, if the winters will become warmer, energy costs will be lowered; however, at the same time, the summers will become hotter, which will increase the demand for air-conditioning. This way, a company’s costs distribution is changed based on environmental issues. Still, businesses should see climate change as an opportunity and a challenge to find new markets, develop new technologies as well as improve their image among average consumers. Studies have demonstrated that customers are most likely to absolve their guilt about their environmental footprint by buying products from a “greener” company. In other words, consuming trends will shift according to which companies take the lead in using green energies in their production process (Echegaray, et al., 2008). In this paper, I will focus on studying the impact of climate change on businesses in Germany. Germany’s climate profile is characterized by an increase of 1˚C in temperature in the last decade of the 20th century as well as an increase in climacteric extremes. However, by the year 2080, there is an estimated increase in temperature of 3.8˚C. This greatly affects the duration of the snow cover in the Alps, which has reduced dramatically in the last years. As a result, Germany is threatened to encounter great losses in the touristic sector of its economy, since the Alps are a very popular touristic destination during the winter season (Zebisch, et al., 2007). I will therefore base my paper on three main sections: business and tourism, along with the side effects brought by climate change, car producing companies and their strategies to cope with environmental issues and insurance companies in Germany and their attitude towards climate change. For example, the insurance company Allianz is determined to fight the negative effects of climate change simply because they have to pay more and more money to the people that actually do suffer from floods in East Germany; if climate change wouldn’t cause the break of the water suppliers, the insurance company wouldn’t have to spend money on fulfilling their obligations towards their clients. 2. Germany’s businesses and climate change A. Tourism Climate is obviously a very important resource for the tourism sector. In Germany, the Alps and the region of Upper Bavaria have the largest market share of 13.5 % for international tourists and 7.9 % for domestic tourists. The constant increase in temperature makes this sector vulnerable, because due to climate change, snow covers could be reduced up to 30-40% (Zebisch, et al., 2007) by 2080 and people might lose interest in these touristic destinations and prefer to spend their holidays in cooler places. “According to the OECD, the German ski industry is most vulnerable of all Alpine countries: one-degree of warming would reduce the number of naturally snow-reliable ski areas by up to 60 percent” (Kunzemann, et al., 2009). Therefore, we can say that businesses that have their activity in the tourism sector will be greatly affected by climate change; in this category are included hotels, pensions, restaurants and local manufacturers that sell their products to tourists. For example, here are two map-distributions of touristic concentrations in 1995 and 1995-2080 (The impact of climate change on tourism in Germany, the UK and Ireland: A simulation study, 2007) We can clearly notice a dramatic decrease in the number of tourists by the year 2080, acording to the climateric predictions and their impact upon snow covers and winter temperatures. This is why, I believe that in the future, Germany’s tourism will shift form mountain areas to cities and towns; also, winter will probably become the least favored season for tourism, while spring and summer will gain more popularity. B. Insurance and climate change: Germany’s population is very concerned with the problem of climate change and the issues that rise with it. Recent statistics present the fact that almost 70% of the country’s citizens consider that climate change represents a serious threat to their well-being in the future, especially because it can cause natural disasters, as already seen around the world. This is why people make use of different types of insurances to be certain that they have a safe exit out of any possible catastrophic situation. I would like to talk here about the German company Allianz, which has a very clear vision about what place the environmental issues take in their business and how they have affected it during the last years. Allianz provides insurance services, asset management services and banking services; all of these areas have been affected, in one way or another, by the problem of climate change. Given the fact that more customers were interested in insuring their properties, belongings and lives in case of a climate change caused disaster the company had to develop a corresponding product line. In this case, not only did the company identify a profitable business opportunity, it also demonstrated care and understanding towards its clients in two ways: it decided to use the “traditional insurance expertise as a risk manager to help our customers understand climate risks that impact them, and we want to develop financial products and services that help reduce those risks” (Kunzemann, et al., 2009). In general, insurance companies have to manifest interest towards climate change and all the effects that it has upon the environment and especially be interested in joining forces for reducing those effects. Generally, more natural disasters will increase the number of insurance claims and therefore increase the costs of the company. The floods, the fires and the earthquakes produce damages that the insurance companies have to cover and to pay for. For example, studies conducted by Allianz demonstrated that over 40% of industrial insurance claims in Germany have been a result of casualties caused by climate change (Allianz, 2010). Therefore, the insurance companies especially have to acknowledge the climate change risk, the effects that it has on their businesses and the way these effects could be integrated in the business procedures. Still, climate change should not be regarded as a risk only, but also as an opportunity, as the company Allianz did. They developed new financial products for their clients: Allianz Climate Solutions provides their clients with international insurance programs and global solutions that cover technical, property and casualty insurance for renewable energy projects. At the same time, the company offers risk transfer alternatives and loan protection insurance, both for projects that use or develop renewable energies. Also, Allianz provides assistance, as well as customized insurance for companies that start on clean technologies and seek energy efficiency. Besides insurance services, Allianz also provides risk consulting of different kinds of renewable energies and they evaluate, per year, projects that are valued over 2 billion Euros; the company not only offers consultancy about risks related to clean technologies and renewable energies, it also develops risk-analysis for financing and different projects. Allianz understands that the trends in the global market tend to shift towards clean technologies and this is why it finances environmental projects all over the world (Allianz, 2010). Scaling it down from corporate clients to individuals, Allianz understands that more and more people in Germany (and not only) are interested about their impact upon the environment and the environment’s influence on their daily activities. Thus, they had to provide their clients with appropriate business solutions, which include asset management, insurance and assistance. Asset management has gone green by developing new products such as investment funds for renewable energies, water and green technologies as well as investment consultancy about what companies are taking into account environmental issues and are sustainably managed, so the customers that are concerned with climate change could participate in those companies’ actions by investing in shares. I believe that Allianz has a very smart business strategy here: they invest a lot of money in companies that develop clean technologies and projects based on renewable energies in order to attract more customers that would want to invest in them at some point as well. In the insurance and assistance section, Allianz helps its customers to decrease their personal energy waste and carbon foot print by offering consultancy for customers to decrease their individual energy consumption and carbon footprint by for example offering energy consultation for real estate, as well as insurance of solar panels or hybrid cars. “Other products aim at better adapting to the unavoidable impacts of climate change, e.g. by insuring crop yield against too much or insufficient rain” (Allianz, 2010). Another business opportunity that rises with climate change is the carbon emissions trading market and the market of environmental technologies, where Allianz has a lot to profit from, as well as help their customers to profit from as well. This aspect is very important, because Allianz not only makes profitable transactions of these markets, it also helps creating a strong environmentally aware company profile, that not only helps reducing climate change, but also knows how to make money out of new green technologies and carbon emissions. Today, Allianz has taken the lead in the European environmental marked, “which has an annual volume of 20 billion Euros” (Kunzemann, et al., 2009) and has a tremendous potential all around the world. Since Germany is a country that took the leadership in implementing green solutions, Allianz will have great benefits when the carbon emissions trading system will be introduced in other sectors of the economy as well. C. Automobile Industry and the Climate Change Challenges: If there is anything to point at when we talk about carbon emission, it is the cars, since they emit a great quantity of CO2 in the atmosphere by burning fossil fuels. The use of cars produces around 6.5 billion tons of carbon emissions accounts for six-and-a-half billion around the world; this represents more than one fifth out of the total carbon emissions in the world and certainly, a car manufacturer can’t simply ignore these statistics. It is indeed a challenge for a car company to deal with the climate change threat. Not only is its business at the top of the “accused” list, it is also hard to develop new automobiles that use new clean energies. However, the acknowledgment of the climate change risk is crucial of a car manufacturer that wants to attain business sustainability. Also, car manufacturing is one of the businesses that climate change will have the greatest impact on. Since we are talking about Germany, I would like to take a closer look to the German car manufacturer Mercedes. Mercedes has been one of the global leaders in car manufacturing for a very long time and it also understands the importance of incorporating environmental energies in its business development schemes. This is why, Mercedes-Benz has decided to launch in 2010 85 Blue Efficiency vehicles that are created with an environmental purpose, and more specifically, to reduce a car’s impact on the environment and make automobiles a sustainable business, both in the present and in the future. Also, Mercedes sends out a very important message as well: environmental efficiency does not have to come at the cost of luxurious interiors, car performance and pleasant aspect. This way, Mercedes-Benz, demonstrates that it takes a dynamic approach to business and that it sees development and research as crucial to car manufacturing. Therefore, climate change has not only posed threats to this business, it has also opened doors for new opportunities, like I stated before in the previous section on insurance companies. By demonstrating that it takes responsibility for its environmental impact and that it takes action to reduce that impact, Mercedes will attract more clients and therefore, generate more revenues. Mercedes started the development of cleaner technologies in 1986 and introduced the three-way catalytic converter as a model to be used in the car manufacturing industry. This tendency for sustainable development is continued in the Blue Efficiency project and the improvement of the Blue Efficiency technologies that want to achieve a very challenging goal: driving without carbon emissions. This is a very innovative approach, which could also stand as proof that Mercedes is a business visionary, since it challenges the classic notion of fuels and their use in the car manufacturing industry. The achievement of this goal will be possible with the introduction of the standard-fit fuel cell, which has already been tested and a limited number of car models using this kind of cell will be released in 2010. These cars will be fueled by oxygen, and not gas, and will produce water vapors as emissions, instead of carbon emissions. There is also an ongoing project of developing an electric drive system, which will be ready for production in 2015 and that will mean that average people will have the opportunity to drive and get to their desired destination without producing any local emissions at all. I believe this is a truly innovative approach to the climate change issue, which also demonstrates the fact that businesses have to take lead in fighting environmental issues. This way, climate change is not a simple inconvenient truth for the business sector, it is an inspiring sector that challenges businesses to create new technologies and bring out progress, as well as strive to achieve sustainability with a company and within a country. Mercedes has not fallen behind in this concept either; the company not only tries to integrate clean environmental solutions within the technologies of the cars it produces and sells, but also engages on several other activities to mean all environmental requirements. For example, the German Environmental Management and Audit Committee have certified the fact that Mercedes takes an environmental approach to developing its policies. Also, Mercedes tries to provide services that are environment-oriented: for example, in the car manufacturing plants in Germany they use “environmentally compatible production and processing of natural fibers”, as well as the “recycling of individual parts and also operating fluids, because the use of environmental technologies makes a key contribution to sustainable mobility at many levels” (Mercedes-Benz, 2010). 3. Conclusion: Germany is well known for its status as an “environmentally” concerned country. Its government and businesses have paid a great deal of attention to climate change, along with the risks it brings and the opportunities it unveils. This is why I have chosen to analyze this country in my paper, because it is a country very much aware of its ecological footprint and has also taken serious actions to diminish that footprint and adapt to a new era shaped by climate changes. In the first section of this paper, I have analyzed how Germany’s tourism will be affected by climate change, especially the winter season and the ski resorts in the Alps, which hold a very important share in this sector. Even if Germany’s touristic patterns will change due to global warming and environmental issues, I still believe that it will remain a country with touristic potential and interest; touristic concentrations will simply shift from the mountains to cities and other centers of human activity. Insurance companies in Germany, such as Allianz, will also face changes in their product lines and costumer appealing strategies due to the effects of climate change. Since Germany’s citizens become more interested in clean energies, the company had to develop new green products to satisfy the demand. At the same time, the company had to invest in environmental projects in order to diminish climate change effects, because many of the insurance claims were generated by environmental unfortunate events, especially the floods in the Eastern part of Germany. The last, but not the least, I have spoken about the car manufacturing industry in Germany, with a case study on Mercedes and the business solutions it offers to climate change related issues. Obviously, cars have a great impact upon the environment due to the carbon emissions, which has determined Mercedes to look for alternative fuels, such as hydrogen and alternative drive systems, such as the electric one, projected for production in 2015. All in all, I would like to say that climate change is a very serious problem that affects everyone and a serious company that seeks business sustainability cannot afford to ignore it. The sooner it acknowledges the changes in costs and benefits generated by environmental issues, the better it will be able to control and benefit from them. I believe that Germany is an example in this matter and that my essay has proven this point with relevant examples. Works Cited and Consulted: Allianz. 2010. Insurance solutions. Allianz Climate Solutions. [Online] Allianz, 2010. [Cited: December 7, 2010.] http://www.acs.allianz.com/en/business_lines/insurance_solutions/index.html. Echegaray, Fabián, et al. 2008. The impact of climate change on business. IRIS Network. [Online] 2008. [Cited: December 6, 2010.] http://www.irisnetwork.org/Publications%20Downloads/MAR/MAR_Impact_of_Climate_Change.pdf. Kunzemann, Thilo and Wish, Valdis. 2009. Germany Climate Change Profile. The Good Entrepreneur. [Online] 2009. [Cited: December 7, 2010.] http://www.goodentrepreneur.com/Knowledge/Features/Germany-Climate-Change-Profile. Mercedes-Benz. 2010. Blue Efficiency. Mercedes-Benz. [Online] 2010. [Cited: December 7, 2010.] http://www3.mercedes-benz.com/mbcom_v4/hu/blueefficiency/en.html. Mikler, John. 2009. Greening the car industry: varieties of capitalism and climate change. Massachussets  : Edward Elgar Publishing, 2009. The impact of climate change on tourism in Germany, the UK and Ireland: A simulation study. Hamilton, Jacqueline and Tol, Richard. 2007. 2007. Zebisch, Marc, Grothmann, Torsten and Schröter, Dagmar. 2007. Vulnerability and Adaptation Strategies of Climate-Sensitive Sectors. Federal Environmental Agency. [Online] 2007. [Cited: December 5, 2010.] http://www.umweltdaten.de/publikationen/fpdf-k/k2974.pdf. Read More